1988 (10) TMI 1 - HC - Income Tax

Summary

Issues Involved:
1. Legality of charging interest under section 215 of the Income-tax Act, 1961.
2. Interpretation of "financial year" under section 215 in relation to the extended time for payment of advance tax under section 212(3A).

Issue-wise Detailed Analysis:

1. Legality of Charging Interest under Section 215 of the Income-tax Act, 1961:

The petitioner was assessed under the Income-tax Act, 1961, for the assessment year 1974-75. The Income-tax Officer issued a notice requiring the petitioner to pay advance tax, which was duly paid. The petitioner anticipated a higher advance tax liability and sought an extension to file an estimate, which was granted by the Commissioner. The petitioner paid the estimated advance tax within the extended time. However, the Income-tax Officer charged interest under section 215 for not paying the advance tax within the financial year. The petitioner appealed against this decision, arguing that the interest should not be charged as the payment was made within the extended time allowed by the Commissioner.

The Appellate Assistant Commissioner initially held that the order levying interest was not appealable. The Income-tax Appellate Tribunal later remanded the case for reconsideration, leading to the Commissioner of Income-tax (Appeals) ruling that there was no justification for charging interest. The Revenue appealed, and the Tribunal concluded that the Commissioner had not adequately considered the remaining portion of the interest not attributable to gratuity, thus allowing the interest to be charged.

2. Interpretation of "Financial Year" under Section 215 in Relation to the Extended Time for Payment of Advance Tax under Section 212(3A):

The core issue was whether the term "financial year" in section 215 should include the extended time allowed under section 212(3A). The petitioner argued that the advance tax paid within the extended time should be considered as paid within the financial year, thereby avoiding interest under section 215. The Revenue contended that the "financial year" did not include the extended time, and interest was chargeable for late payment.

The court examined the relevant provisions, including sections 207, 208, 209, 209A, 211, and 212, and concluded that the "financial year" in section 215 should include the extended time as stipulated in the proviso to section 212(3A). The court reasoned that if the "financial year" did not include the extended time, the provisions allowing for such extensions would be meaningless. The court held that the legislative intent was to provide a benefit to the assessee by allowing an extension of time to pay advance tax, and this benefit should not be nullified by charging interest for payments made within the extended period.

Conclusion:

The court ruled that no interest could be charged under section 215 for advance tax paid within the extended time allowed under section 212(3A). The orders dated February 2, 1982, and September 5, 1986, charging interest on the sum of Rs. 17,11,410 were set aside. The writ application succeeded, and a writ of mandamus was issued to withdraw, cancel, or rescind the impugned orders related to charging interest on the advance tax paid within the extended time. There was no order as to costs.